By Bret Smart, COO @ Voyager Portal
We often find that our customers spend tons of time haggling over small line items in their Charter Parties.
Sure, it’s common knowledge that a well-placed “Brazil Clause” can save a lot of pain and frustration if certain delays happen. Or, charterers simply accept a historical charter party that they’ve used dozens of times before with the same owner. “Just go ahead and use the last CP with updated dates and new vessel” is a common email in the industry.
But we notice that many charterers, traders and owners don’t truly know the full value of each clause! So charterers and owners aren’t necessarily negotiating over the most critical things during a CP negotiation, or they are spending far too much time and bargaining capital on a less-important rider clause.
By analyzing charter party clauses in conjunction with port call events, charterers can have a clearer understanding of the risks associated with calling a specific port or terminal, which can later be translated into better contract arrangements between the parties.
Simply put, having more information and data about what to expect in a port call can greatly impact the demurrage claim, and ultimately the profitability of a trade or the supply chain’s efficiency.
We wanted to highlight the significance of data-driven decision-making in building out a charter party. We analyzed a number of real-life examples of a single port call — across dry bulk, liquid bulk, and project cargo — and applied two different sets of CPs to them.
- The first case used an ideal set of contracts for an owner (as you would imagine, less laytime, lower deduction percentages for shifting, etc).
- Then we ran the same port calls under a contract that is “ideal” for a charterer (more laytime, 100% deductions for certain events, etc).
The goal was to look at the spread, to see how wide a range of demurrage developed based on the negotiation of CP clauses – and if this range justified a corresponding negotiation of freight rate.
Of course, with any analysis, there are a few caveats here.
- We did not alter freight rate or demurrage rate in any of the scenarios.
- We did not look at crazy or extraordinary cases, but intentionally took “average” port calls (where port congestion, operation time, and all other wait times were more-or-less average for the port)
- We used reasonable rates/clauses that exist in very common CPs, riders, and elsewhere.
- For further questions/details on the analysis, reach out to email@example.com.
The range column shows how much money is potentially on the table or “at play” for that single port call by altering CP clauses.
- This is just for a single port call on a single voyage; imagine a COA or another repeating trade lane. For charterers with a handful of voyages per month, this is easily a few million dollars per year that is on the table.
- Savings/ranges would be considerably higher for a portcall that results in extraordinarily long wait times and demurrage bill.
- Tons of data is being lost while industry experts continue to negotiate via text or phone, instead of getting structured information into a standardized, repeatable system.
- Even a spreadsheet can’t handle the deepest, most useful insights: how to turn this data into better decision-making on future trades?
Using available data is critical for saving big $$ in this industry, and it’s simply not being done.